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6 Inventory Management Lessons Learned (the Hard Way)

Sep 7, 2017 / by Denise Pierosh

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Inventory is the one aspect of accounting everyone loves to hate, but it’s really not as complicated as you might think. What it does require is logical thinking and careful attention.

I spent much of my career as a controller and accountant, and I learned a number of difficult lessons along the way. I’m sharing a few pointers here in the hopes you won’t have to learn the hard way, as I did.

Inventory is an asset.

Your company’s inventory is a core asset, and it must be managed like one. A good way to gain perspective on this is to consider your inventory as one enormous balance sheet item. It must be tracked consistently and accurately; half-hearted inventory management is useless.

Not all inventory is "cut and dry."

Many companies have inventory concerns that are not straightforward. Multi-site inventory management is one of those challenging factors, because it requires separate bookkeeping functions per inventory location.

Another such case is a company that imports some or all of its inventory. In this case, companies must consider landed costs, which includes all travel and other related expenses necessary to get the product to you (in addition to the cost of the product itself). For example, a widget that has a value of $1 might have an associated cost of $2.50 by the time it arrives at your warehouse.

Consistent alignment of inventory is a must.

Your company’s inventory must to be monitored consistently in two places: at its physical location and electronically. Some companies, depending on the volume of inventory movement, should do this on a daily basis. It could be you only need to do a monthly inventory alignment, but consider that a bare minimum.

If you are not accurately managing your inventory, you are likely overstating or understating your assets. This in turn can create dangerous discrepancies in working capital. Take the time, and do it right; otherwise, things will quickly get out of hand and cost you much more time and money in the long run.

Discrepancies can’t be ignored.

If you’re assuming your physical and electronic inventory will always be exact, think again. Behind every inventory action is a human, and humans make errors. Period. When you identify a discrepancy in your recordkeeping, the worst thing you can do is ignore it or find a haphazard way to eliminate it. Whether the discrepancy is to your advantage or not, it must be expensed and included on the profit and loss statement.

Poorly controlled inventory has negative consequences.

If you have too much inventory, you have too much money sitting in your warehouse. On the other hand, if you don’t have enough inventory to fill orders, your flow of revenue will be reduced and your customers will not be happy.

The right software is an important part of inventory management.

Finding the right software platform for your company’s inventory management is a great way to tighten your financial ship. Search for a program that will do a good job of pulling your transactions through every step of the bookkeeping process, from purchase order generation to final invoicing. In other words, your inventory management software should automatically handle the backend of every transaction, and thus reduce the impact of human errors.   

Selecting the most appropriate software for your company will take some investigation. Following are abbreviated descriptions of just a handful of the many inventory management software programs available.

Quickbooks Enterprise is a well-known name in the realm of bookkeeping. The Enterprise version is the only one that is sufficiently robust to manage your inventory tracking. It manages details such as bin location and serial number tracking, barcode scanning, and tracking inventory between locations. Like all Quickbooks options, it is a relatively easy-to-use platform that will allow you to track inventory through every stage of the supply chain.

Quickbooks Online also offers an inventory management module in the Plus Edition.  While not as granular as Quickbooks Enterprise, it allows for accurate inventory setup and tracking and handles background postings through purchase orders and customer invoicing to properly adjust inventory levels and costs.

NetSuite offers real-time inventory visibility, inventory trends, stock to order and supplier on-time performance. Your vendors and suppliers can collaborate with you throughout the supply chain, thereby improving communication and reducing errors.

Cin7 is an integrated inventory management software that allows you to manage all of your sales channels, inventory, point of sale, and supply chain in one central, cloud-based software. Cin7 caters to businesses that want to sell globally.

LightspeedHQ integrates management of your online and physical location inventory, syncing both in real time. Lightspeed’s target market is small to medium size businesses, with offerings similar to enterprise level solutions and a focus on business growth. The software is able to tag and organize inventory, track levels, and reduce the number of out-of-stock items.

But wait, there are more! You can check out Brightpearl, proVisionWMS, SellerActive, 3PL Warehouse, Enspire Commerce, Sales Warp, Trade Gecko #1, Wasp Barcode, and the list goes on.

Your choice of inventory management software isn’t exactly endless, but it might feel that way. To manage your search, do your homework. A very useful place to start is Capterra, a business that will help your businesses find the software that works best for you. Check out this Capterra summary of brief product descriptions and website links for numerous management programs. When you visit the website, take time to chat with a representative. You’ll also find they will love to chat with you about why their product is best.

Before you begin your serious vetting process, make a list of discussion points:

  • What inventory management system are you currently using
  • What is the nature of your business
  • What inventory do you carry
  • Who is your customer
  • What challenges are you facing
  • What are your business objectives?

Use a spreadsheet or some other method to compare features, benefits, and pricing. Narrow your list to three, and then request a demo. 

Consult with an expert.

A bookkeeper is more than a number-cruncher. She will want to know about your business, understand your inventory, and learn about your business objectives.

Many companies make a go of handling their own inventory management; that can be a good choice as long as you have a dedicated and well-trained staff member who can consistently and accurately manage the necessary tasks.

Other companies select a hybrid approach that allows them to manage some inventory tasks in-house while relying on an expert third-party for reconciliation, physical count verification and accurate representation on the balance sheet. If you find this option suitable for your company, you can count on your bookkeeper to help you assess your in-house inventory management needs and select the software that is most suited for your company.

Other companies place the burden of inventory management on a third-party bookkeeper. Most companies cite one of two primary reasons for their decision. Firstly, accurate bookkeeping becomes an important part of tax preparation; by engaging a bookkeeper, you are building accountability into your finances, avoiding an April 14 panic, and benefitting from expert consultation throughout the year.

Secondly, a skilled and trustworthy bookkeeper can handle the details of your purchase orders, inventory, invoicing, and other important tasks. Unloading this job frees you to do what you do best: run your business.

TIP: Investigate how outsourced financial services might benefit you. Paro, for example, is a marketplace of freelance finance experts (like me) who have extensive experience solving finance needs like yours. One thing I especially like about Paro’s consultation is that you have no obligation or long-term commitment.

If you choose to entrust your inventory management to Paro or another third party, that doesn’t release you from understanding your bookkeeping practices. As a business owner or financial leader of your company, every financial decision you make will impact your business; in other words, in the end you are the one who is accountable for your success.

Tags: Bookkeeping